Slow construction figures drag down growth rate

UK construction firms reported the slowest rate of growth in over two years during the third quarter of this year, according to the latest Construction Products Association (CPA) survey.

The survey found that only four per cent of building contractors reported an increase rather than decrease in output compared with a year earlier.

But despite the comparably poor rate of growth is was also the 10th straight quarter of increasing activity in the industry.

The CPA is shortly to revise downwards its output forecast for 2015 in its autumn analysis. The figures match the earlier findings of the Office of National Statistics that the sharpest contraction in construction output for three years dragged down UK growth at a faster pace than expected in the third quarter as manufacturing remained in recession.

Official data showed the UK economy expanded by 0.5pc in the three months to September.

The Office for National Statistics (ONS) said growth was driven almost entirely by Britain’s dominant services sector, which expanded by 0.7 per cent in the third quarter. While the data showed output stagnated between July and August, the quarterly expansion was the strongest this year, adding 0.6 percentage points to overall growth.

Joe Grice, the ONS’s chief economist, said the figures showed the economy was “still expanding steadily”, and described the expansion in services as “robust”.

But construction output shrank by 2.2 per cent on a quarterly basis – the sharpest contraction since the third quarter of 2012.

Construction accounts for 6 per cent of UK gross domestic product (GDP) but the quarterly contraction was enough to drag down overall growth. Manufacturing, which drives around 10 per cent of the UK economy, shrank 0.3 per cent, meaning that sector is still technically in recession although overall industrial output was positive.

Overall the UK economy recorded its eleventh straight quarter of expansion and is now 6.4 per cent larger than its pre- Crash peak in 2008 although the construction and industrial sectors are still below that 2008 high tide.

Some economists and analysts warned that, just as with the 2012 London Olympics, the Rugby World Cup may have skewed the figures downwards.

Meanwhile, Bank of England governor Mark Carney said the figures meant the expected interest rate increase in early 2016 was now more of a possibility than a certainty and suggested it may happen clpser to 2017 while the economy recovers lost capacity.